Neef Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 84 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 12 Direct labor $ 5 Variable manufacturing overhead $ 4 Fixed manufacturing overhead per year $ 432,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 5 Fixed selling and administrative expense per year $ 61,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced 12,000 9,000 Units sold 9,000 10,000 Units in ending inventory 3,000 2,0000 The net operating income (loss) under absorption costing in Year 2 is closest to: $75,000 $186,000 $136,000 $87,000

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A:

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.